For good and ill, John McCain’s fortunes in the presidential debates have followed the fluctuations of the economy. When the recent financial meltdown caught the McCain campaign off-guard, it was reflected in his unsteady performance in the first two debates. On the heels of last week’s stock-market rally, however, McCain recovered form in his final debate at New York’s Hofstra University, turning in what likely was his best performance to date. But just as the state of the economy remains perilous, McCain’s electoral prospects remain bleak.

McCain’s partial rebound in the final debate had little to do with his much-anticipated tack of raising Obama’s ties to William Ayers, the unapologetic Weather Underground terrorist, and ACORN, the radical community activist organization that has fraudulently registered thousands of voters. For all the carping of Democratic partisans and some diffident conservatives, the Ayers-ACORN-Obama axis is a legitimate subject for debate. Along with Ayers, Obama served on the board of the Woods Fund, a Chicago-based leftist charity group, where he helped steer grants to ACORN – a shady relationship that casts doubt on Obama’s judgment and his campaign’s vaunted commitment to political reform. But McCain clearly was reluctant to pursue this line of attack and it showed in his confused delivery. McCain insisted that “I don't care about an old washed-up terrorist,” only to add immediately that “we need to know the full extent of that relationship.” Which was it? Even McCain didn’t seem to know.

A more focused approach may not have helped. Obviously prepared for the charge, Obama handled it deftly. His associations with Ayers and ACORN were insignificant, Obama suggested, not altogether truthfully. He then steered the question to his poll-tested strength on the economy, citing his associations with the likes of billionaire investor Warren Buffett, his economic advisor. Here a more aggressive opponent might have pointed out that that friendship raises its own questions. For instance, what influence would Buffet, a firm believer that Americans are insufficiently taxed, exert on Obama’s tax policy? But McCain did not press the point, enabling Obama to exploit the main drawback of highlighting his more unsavory alliances, namely that it would make McCain look petty and disconnected from the critical issue of the economy. Thus was McCain snared in his own trap.

Far more effective was McCain’s forceful deconstruction of Obama’s health care plan. The worst feature of Obama’s plan has always been its “pay-or-play” insurance mandate. This feature would force employers to either “play” by providing unspecified “meaningful coverage” or “meaningful contribution” toward health insurance or otherwise pay a “percentage of payroll toward the costs of the national plan.” “Small businesses” – Obama never defines the category – supposedly would be eligible for a tax credit, but only if they pay by providing health insurance and “cover a meaningful share of the cost of employee health premiums.” Elementary economics predicts the costs would be borne by employees in the form of lower wages, layoffs, and a reduction in hiring. Indeed, according to one study, between 83 and 100 percent of the cost of coverage is passed on to employees through reduced wages.

In previous debates, McCain had vaguely alluded to these flaws. But his references to a “fine” on employers were unsubstantiated and unclear. Where would the fine come from? Would all employers really have to pay it? Not so in yesterday’s debate, when McCain methodically explained how Obama’s plan would punish employers, reduce consumer choice, and ultimately set the country down the road to socialized medicine. “If you like that, you'll love Canada and England,” McCain quipped, in a line that visibly unsettled Obama. One could only wonder why he had waited until the last debate to use it.

McCain had another surprise in store when Obama attempted his standard tactic of conflating McCain with President Bush. Although the charge clearly bothered McCain, he had struggled to come up with a compelling reply. But when Obama brought up the president yesterday, McCain countered with a sharp riposte. “If you wanted to run against President Bush, you should have run four years ago,” McCain said. It was the senator at his sharp-tongued best.

Arguably McCain’s most memorable line of the night was accidental. At one point, McCain referred to Obama as “Senator Government.” Almost certainly a Freudian slip, it was nevertheless an apt summary of Obama’s preference for an expanded government role in everything from health care to education. It can’t be long before some savvy entrepreneur sets up a brisk trade in “Senator Government” bumper stickers.

Still, it would be excessive to call McCain’s much-improved performance a comeback. More composed and articulate than in their earlier meetings, McCain still failed to rattle Obama. Even when he was misleading about the merits of his health care plan, the Democratic nominee was coolly logical and relentlessly unruffled.

Obama also scored his share of hits. For instance, he ably capitalized on McCain’s implausible promise of an across-the-board spending freeze. When McCain later tried to make a case for aid to families with special-needs children, Obama noted that it would be difficult to provide funding for such programs under a spending freeze. All politicians are guilty of promising too much, of course, but not all are caught in the act on national television.

On the campaign trail, meanwhile, things look bleaker than ever for McCain. Obama’s lead in the national polls, estimated at around 10 points, is just one sign of McCain’s woes. Another is that McCain is now trailing Obama in Republican friendly states like Virginia, Florida, and Colorado – the last a state that, as Democratic strategists gleefully note, hasn’t supported a Democrat for president in 16 years. Instead of putting Democratic-leaning states in play, McCain will have to fight to hold on to Bush country. With mere weeks to go before the election, the most hopeful spin on the McCain campaign may be the same one offered victims of the economic downturn: there’s nowhere to go but up.

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